The 11 ICHRA Employee Classes: A Strategic Design Guide

The 11 permitted employee classes are the "secret sauce" of ICHRA. They transform a simple reimbursement arrangement into a surgical benefits tool — allowing employers to offer radically different contribution amounts to different employee groups while remaining 100% IRS-compliant. This is your complete guide to using them strategically.

Why Classes Matter

Under 26 CFR § 54.9802-4, the IRS allows employers to segment their workforce into up to 11 distinct classifications. Within each class, the terms must be uniform — every full-time employee in Class A gets the same allowance. But between classes, the terms can vary wildly. A salaried manager might receive $800/month while a seasonal worker receives $300/month — and that's perfectly legal.

This flexibility is what makes ICHRA a design tool, not just a benefit product. In a traditional group plan, everyone gets the same plan at the same employer contribution percentage. With ICHRA, you can architect a tiered system that matches business reality.

The 11 Permitted Classes

1. Full-Time Employees

Employees who meet the full-time equivalent standard — typically 30+ hours per week or 130+ hours per month under the ACA. This is your anchor class. Most employers start here with their highest ICHRA allowance to attract and retain core staff.

2. Part-Time Employees

Employees working fewer than 30 hours per week. Typically offered a lower ICHRA allowance, or sometimes no allowance at all. The key strategic value: you can segment part-time workers into their own class so their lower contribution doesn't pull down the full-time benefit.

3. Salaried Employees

Paid a fixed annual amount regardless of hours. Useful for differentiating benefit levels between management/executive staff and the general hourly workforce. Many employers use this to create a "leadership tier."

4. Non-Salaried (Hourly) Employees

Paid based on time worked. Can be segmented to offer a different contribution strategy from salaried leadership. This is particularly valuable in industries with a clear divide between office staff and field workers.

5. Seasonal Employees

Hired for specific durations — holiday rush, harvest season, summer tourism. May be excluded from ICHRA entirely or offered a pro-rated/lower allowance to control costs during peak staffing. For seasonal businesses, this class prevents benefit costs from spiking during high-season hiring.

6. Temporary Employees (Staffing Firms)

Employees of a staffing firm or on short-term assignment. Often excluded from ICHRA to avoid administrative overhead for workers who may only be with the company for weeks.

7. Union Employees (Collective Bargaining)

Employees whose benefits are negotiated by a union. Must be classified separately because the terms of the ICHRA must align with the collective bargaining agreement. This is non-negotiable — mixing union and non-union employees in the same class creates legal exposure.

8. Waiting Period Employees

New hires who haven't reached their 30/60/90-day eligibility period. This allows employers to offer ICHRA coverage only after a reasonable retention period, reducing costs from employees who leave within the first month.

9. Non-Resident Aliens

Foreign workers with no U.S.-sourced income. Generally excluded from ICHRA since they are not eligible for U.S. individual market plans.

10. Geographic Location

Employees grouped by insurance rating area, state, or multi-state region. This is one of the most powerful classes for distributed workforces. A $400 allowance buys very different coverage in rural Alabama versus Manhattan. Geographic classes let you equalize buying power — offering higher allowances in expensive markets (California, New York) and lower amounts in affordable areas (South Carolina, Nebraska).

11. Combination Classes

You can combine any of the above classes to create hyper-specific segments. Examples:

• Job Status + Union: "Part-Time" + "Union Member"
• Job Status + Geography: "Full-Time Hourly" + "Living in California"
• Complex Multi-Class: "Union Member" + "Full-Time Hourly" + "Working in Texas"

The possibilities are nearly infinite. Each combination class must still follow uniform contribution rules within itself, but the inter-class flexibility is where the real design power lives.

The Age-Banding Advantage

One critical nuance: you cannot create a distinct class based on health status or job title (no "Manager Class" or "Diabetic Class"). However, you can structure contributions to scale with age within any class.

The IRS allows a 3:1 maximum ratio. If your youngest employee gets $300/month, your oldest can get up to $900/month. This is essential because individual market premiums rise with age — a flat allowance that's generous for a 28-year-old may be unaffordable for a 58-year-old.

ICHRA Masters calculates age-banded contributions automatically within the quoting platform.

Real-World Hybrid Strategies

One of the most powerful features of ICHRA class design is the ability to run both a group plan and an ICHRA simultaneously — just for different classes. Two scenarios from the Training Manual:

Scenario A: The Geographic Pivot

A tech company headquartered in Denver has 40 employees at HQ and 10 remote employees in rural Nebraska where no group network has meaningful provider coverage. The solution: keep the Denver team on the existing Blue Cross group plan. Move the Nebraska team to a "Geographic Class" and offer them an ICHRA to buy local individual plans. Both groups get great coverage; the employer avoids forcing a national group plan onto a population where it doesn't work.

Scenario B: The "New Hire" Gradual Transition

An employer wants to adopt ICHRA but is terrified of "employee revolt" if they cancel the beloved group plan overnight. The solution: implement a "New Hire Sub-Class." Everyone hired before January 1, 2025 stays on the Blue Cross group plan. Everyone hired after that date goes into the ICHRA. Over 3-5 years, the group plan naturally sunsets through attrition — zero revolt, zero disruption, gradual transition to full ICHRA.

Class Size Minimums: The Anti-Cherry-Picking Rules

Here's the catch. If an employer offers a group plan to one class and ICHRA to another, the IRS enforces minimum headcount requirements for the ICHRA class. This prevents small business owners from keeping a rich group plan for a few managers while "dumping" higher-risk employees into the individual market.

• Under 100 employees: Minimum class size is 10 employees
• 100–200 employees: Minimum class size is 10% of the total workforce
• Over 200 employees: Minimum class size is 20 employees

Critical exceptions: These minimums do NOT apply if:

1. The employer only offers ICHRA (no group plan involved at all)
2. The class is based on a "New Hire" subclass (Scenario B above)

This means pure ICHRA employers have complete flexibility. The minimums only kick in when you're running a hybrid group + ICHRA setup.

The S-Corp Owner Trap

The "Who Can Participate" question is the #1 point of friction during an ICHRA sale. You will be asked about S-Corp owners in nearly every case involving a closely-held business. Here's the definitive answer:

• C-Corp owners: Treated as W-2 employees. They can participate tax-free. ✓
• LLC/Partnership owners: Owners (partners) are not W-2 employees. They cannot receive tax-free ICHRA reimbursements, but can often deduct premiums on their personal returns.
• S-Corp owners (>2% shareholders): They cannot receive tax-free ICHRA reimbursements. Their reimbursements must be added to W-2 Box 1 as taxable income. However, they are generally exempt from FICA taxes, and the owner takes the "Self-Employed Health Insurance Deduction" on their 1040, making it effectively pre-tax for income tax purposes.

Source: IRS Notice 2008-1 and IRC § 1372. Know this cold — it will come up in every owner-operated business conversation.

The Controlled Group Warning

If a business owner has multiple companies, the IRS treats them as one single employer under IRC § 414 (Controlled Group rules). You must aggregate headcount across all commonly owned entities. If the combined total crosses 50 full-time equivalent employees, the employer becomes an ALE — subject to the full weight of the Employer Mandate penalties.

This is the trap agents walk into when they quote a "15-person LLC" without asking: "Do you own any other companies?" That 15-person LLC might be one of four businesses totaling 80 employees. Ignoring Controlled Group rules can cause the plan to fail discrimination testing and trigger massive IRS penalties.

Class Design Is Strategy

The difference between a "Tourist" agent who offers one flat class and a "Specialist" who architects a three-class, age-banded, geographically adjusted ICHRA with a New Hire transition carve-out is night and day. The first delivers a commodity. The second delivers a consulting engagement worth $35–$50 per employee per month.

Classes are the reason employers pay consulting fees. Master them.